Federal deficit reached $1.99 trillion in fiscal 2026 as interest costs climbed

The federal government closed the 2026 fiscal year with a deficit of about $1.99 trillion, according to the Treasury Department’s final Monthly Treasury Statement for the year that ended Sept. 30. The gap was about $217 billion wider than the roughly $1.78 trillion deficit recorded in fiscal 2025.

Treasury released the figures on Friday, Oct. 16, according to Reuters, which described the shortfall as the largest in five years. The final numbers closely match a preliminary estimate the Congressional Budget Office published Oct. 8, which put the deficit at $1.993 trillion and the year-over-year increase at 12 percent.

Spending grew twice as fast as revenue

Total receipts rose to about $5.40 trillion in fiscal 2026, up from about $5.23 trillion the year before, Treasury data show. Outlays climbed to about $7.40 trillion from about $7.01 trillion. CBO calculated that receipts grew 3 percent while outlays grew 6 percent.

On the revenue side, individual income taxes were the main source of growth. Treasury recorded about $2.85 trillion in individual income tax receipts, up from about $2.66 trillion. Corporate income taxes moved the other way, falling to about $381 billion from about $452 billion. CBO said larger deductions for certain investments under the 2025 reconciliation act reduced some corporate payments.

Tariff refunds cut customs revenue

Net customs duties, which consist mostly of tariffs, totaled about $173 billion in fiscal 2026, down from about $195 billion in fiscal 2025. CBO said the decline reflected refunds of tariffs imposed under the International Emergency Economic Powers Act. It estimated that about $130 billion in such refunds were paid after a Supreme Court decision in February 2026.

Interest and entitlements drove spending

Interest on the debt was one of the fastest-growing costs. CBO estimated that net interest on the public debt reached $1.143 trillion, up $115 billion, or 11 percent, and attributed the increase to a larger debt and higher long-term interest rates. Treasury’s own budget-function table, which uses a different definition, shows net interest outlays of about $1.05 trillion, up from about $970 billion.

The largest benefit programs also grew. By CBO’s count, Social Security benefits rose 5 percent to $1.654 trillion, Medicare outlays rose 8 percent to $1.069 trillion and Medicaid rose 8 percent to $723 billion, according to the budget office’s review. Treasury figures show national defense spending of about $965 billion, compared with about $917 billion a year earlier.

A September deficit instead of a surplus

September alone produced a deficit that CBO estimated at $28 billion, compared with a $198 billion surplus in September 2025. Much of that swing reflects calendar quirks. Because Sept. 1, 2025, fell on a holiday, some payments were shifted into August of last year; without that shift, CBO said, the September 2025 surplus would have been $110 billion.

Reaction

The Committee for a Responsible Federal Budget, a nonpartisan group that advocates lower deficits, said in an Oct. 8 statement that the deficit ranks among the largest in U.S. history and is the highest outside a war or recession. The group called for a deficit target of 3 percent of gross domestic product, which it said would be about half the current level.

The 2027 fiscal year began Oct. 1, and the October figures will be the first monthly look at how the new year is shaping up.